Ms Bishop was presented with the medal by her Dutch counterpart Frans Timmermans during a brief meeting on the sidelines of the NATO summit in Wales on Thursday.
It's just the eleventh time the order has been granted and Ms Bishop is just the third woman to receive it.
"Julie Bishop did a marvellous job this summer," Mr Timmermans said before pinning the medal on the Australian foreign minister's jacket.
"She helped the Netherlands, she helped Europe, she helped me personally to tackle one of the most difficult situations the Netherlands has ever had to face."
The Dutch foreign minister said that together the pair, through the UN Security Council, convinced the world "that we should be allowed to repatriate the victims and their belongings".
Without Ms Bishop's "brilliant interventions" the countries wouldn't have succeeded, Mr Timmermans added.
Ms Bishop, who is now officially a Commander of the Order of Merit of the Ministry of Foreign Affairs, said she was touched and honoured to receive the medal "on behalf of the people of Australia".
The first call the foreign minister took after Malaysia Airlines flight 17 was downed in mid-July - aside from her own staff and Australian journalists - was from Mr Timmermans.
"From that moment we resolved we would work together and do whatever it took to retrieve the bodies and commence an investigation," Ms Bishop said at the Celtic Manor golf resort in Newport.
The foreign minister was honoured as Dutch air crash investigators announced they will release on Tuesday a preliminary report into what brought down flight MH17, killing 298 passengers.
"The preliminary report will present factual information based on sources available to the Dutch Safety Board," investigators said in a statement.
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